China’s proposed tariffs on U.S. liquefied natural gas and crude oil exports opens a new front in the trade war between the two countries. If enacted, the tariff would be a major blow to the American natural gas industry, which has been experiencing unprecedented growth in recent years. US exporters and developers were muted in their response to the announcement from China's Customs Tariff Commission of the State Council.

China had curtailed its imports of U.S. LNG over the last two months, even before its formal inclusion in the list of potential tariffs. Still, China is the world’s second-biggest LNG importer in 2017, as it buys more gas in order to wean the country off dirty coal to reduce pollution.

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Cheniere has exported dozens of cargoes from its terminal in Sabine Pass, La., to China on a spot basis and has two long-term sales agreements with state-owned CNPC that supported its decision to build a third liquefaction unit at its Corpus Christi

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I think that China's capacity for taking pain is far greater than America's. The Chinese stock market has tanked but they have not picked up the phone. They will adjust. But imagine the reaction when the trade war tanks our stock market.

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China’s proposed tariffs on U.S. liquefied natural gas and crude oil exports opens a new front in the trade war between the two countries. If enacted, the tariff would be a major blow to the American natural gas industry, which has been experiencing unprecedented growth in recent years. US exporters and developers were muted in their response to the announcement from China's Customs Tariff Commission of the State Council.

China had curtailed its imports of U.S. LNG over the last two months, even before its formal inclusion in the list of potential tariffs. Still, China is the world’s second-biggest LNG importer in 2017, as it buys more gas in order to wean the country off dirty coal to reduce pollution.

I will gladly pay a couple bucks more for products made by Americans working in factories powered by cleaner energy than by children force to work in the sweat shop

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I think that China's capacity for taking pain is far greater than America's. The Chinese stock market has tanked but they have not picked up the phone. They will adjust. But imagine the reaction when the trade war tanks our stock market.

China, for its part, might look to Russia for more LNG since by the end of 2019, Russia will begin sending more natural gas to China through its new 2,500-mile Power of Siberia pipeline.

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I think that China's capacity for taking pain is far greater than America's. The Chinese stock market has tanked but they have not picked up the phone. They will adjust. But imagine the reaction when the trade war tanks our stock market.

Let's cut to the chase. Hit them with a 200% tariff on anything coming out of China until they reform their markets and stop the theft of intelectual property

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I think that China's capacity for taking pain is far greater than America's. The Chinese stock market has tanked but they have not picked up the phone. They will adjust. But imagine the reaction when the trade war tanks our stock market.

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I would love for the USA to greatly diminish trade with China. I believe that we should enrich countries that are free and not communist or other dictatorships. We need to stop our crony capitalists from running our foreign policy and immigration. Let's not maximize trade with our largest international adversary.

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So how exactly will this affect americas LNG exports? it cant - the LNG will simply go elsewhere... the chinese buy their gas from somewhere else, lets call it OCEANIA, and america sells their gas to OCEANIA to meet their shortfall... LNG is a global commodity, so it cant be affected by this type of news event... end of story.

As far as trading goes - i interpret this news release from China as a little desperate... developing countries and economies need lots of energy, taxing the life support system for their industry is absolute stupidity. They know they cant absorb higher costs of that magnitude, so its clear they will source it elsewhere. And it being equally obvious that america will then sell it elsewhere makes you wonder what the point of the announcement was? What kind of leverage did they hope to gain from it? It exports the political pressure to another country who will supply them...

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If implemented apart from Power of Siberia I they need also second pipe thats currently being negotiated with Gazprom. First pipe - 38 bilion meters. Second has projected capacity of 30 bilion. Projected so capacity probably can be increased.

Qatarhas about 2.6 million inhabitants as of early 2017, the majority of whom (about 92%) live in Doha, the capital. Foreign workers amount to around 88% of thepopulation, with Indians being the largest community numbering around 691,000. ... A significant minority of thepopulationis Hindu.

"More than 65 percent of theU.S. trade deficit in goods is with China. The$375 billion deficit with Chinawas created by $506 billion in imports. The main U.S. imports from China are consumer electronics, clothing, and machinery. Many of these imports are actually made by American companies. They ship raw materials to be assembled in China for a lower cost. They are counted as imports even though they create income and profit for these U.S. companies."

Trump says all foreign countries are taking advantage. But in fact its more about US companies taking advantage of a world trade system mainly created by the US.

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GA, please back that up by showing me some countries that buy more from us than they sell to us.

Canada is throwing a hissy fit but will negotiate.

Eastern Europe offers a better market if we help them grow their economies.

Australasia offers a growing market.

etc.

Apparently Canada does buy about the same amount from the USA as they sell to the USA, depending on who is doing the accounting and if trade in financial services is included (and whatever arcane ledgers are used for that). In industrial goods, agriculture, lumber and minerals, Canada tends to be a net exporter, and a net importer of consumer items and heavy machinery. One of the peculiarities of the relationship is that is seems to have worked out. As to the hissy fit, keep in mind that that was intended for domestic political consumption, but The Donald reacted vary badly. If The Donald hits out with that 25% auto tariff, Canada goes instantly into a major recession, and a collapse of various urban housing markets with probably 50% market-value write-downs, and that will collapse the big Canadian banks, which are vastly over-extended in home mortgage loans at totally unrealistic pricing (average price for a house in metro Toronto: $1.1 million. In metro Vancouver: $1.6 million.) (Same house in New Brunswick: $165,000).

Eastern Europe, being the Baltics, Poland, Ukraine, Romania and Bulgaria, toss in Slovakia, Slovenia, Hungary, and you have a really great market for LNG and a lot more. Since the Russians have made themselves very unpopular, stealing that market share should be easy enough. What those countries need are trade credits. The USA could totally clean up in those markets if it played its cards right.

PS: 85% of finished autos manufactured in Canada are directly exported to the USA. A 25% tariff would close those plants and hit 190,000 jobs. Ouch.

Edited August 10, 2018 by Jan van EckAdded P.S.

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Apparently Canada does buy about the same amount from the USA as they sell to the USA, depending on who is doing the accounting and if trade in financial services is included (and whatever arcane ledgers are used for that). In industrial goods, agriculture, lumber and minerals, Canada tends to be a net exporter, and a net importer of consumer items an﻿d heavy machinery. One of﻿ the pec﻿uliarities of the relationship is th﻿at is seem﻿s to ﻿have﻿ worked out. A﻿s to the hissy fit, ke﻿ep in mind ﻿tha﻿t that was﻿ int﻿en﻿ded for domestic ﻿p﻿olitic﻿al co﻿nsumpt﻿ion,﻿ but The﻿ Do﻿nald reacted vary b﻿ad﻿ly﻿. ﻿﻿﻿I﻿﻿﻿﻿﻿﻿f﻿ T﻿he Donald ﻿hits﻿﻿o﻿﻿ut wi﻿th that 2﻿5% au﻿to tariff, ﻿Canada goe﻿s instantly ﻿into a﻿ major recession, ﻿an﻿d﻿﻿ a colla﻿pse of various u﻿rban housi﻿ng m﻿arkets ﻿with probably 5﻿0% market﻿-value write-dow﻿ns, and that ﻿will collap﻿﻿se ﻿t﻿he big Canadian banks, whi﻿ch are v﻿astly﻿ over﻿-extende﻿d in home﻿ mortgage﻿ loans﻿ at totally﻿﻿un﻿realistic﻿ prici﻿﻿﻿﻿﻿﻿ng ﻿(ave﻿rag﻿e price for a house in metro T﻿o﻿ronto: $1.1 million. In metro V﻿ancouver: $1.﻿6 million.) (S﻿ame house in N﻿ew ﻿Brunswick: $165,000). ﻿

﻿ Eastern Europe, being the Baltics, Poland, Ukraine, Romania and Bulgaria, toss in Slovakia, Slovenia, Hungary, and you have a really great market for LNG and a lot more. Since the Russians have made themselves very unpopular, stealing that market share should be easy enough. What those countries need are trade credits. The USA could totally clean up in those markets if it played its car﻿ds right.

PS: 85% of finished autos manufact﻿ured in Canada are directly exported to the USA. A 25% tariff would close those plants and hit 190,000 jobs. Ou﻿ch﻿.﻿

So, Trump claimed that the US has a $100 billion trade deficit with Canada, and yet, you, Jan, are claiming that the US and Canada have a relatively equal balance of trade. So, considering this discrepancy, I thought I'd look it up. The most recent data I could find is from 2016, and it says Canada imported $221 billion from the US while the US imported $266 billion from Canada. We need to also add in the 'services trade surplus' of $24 billion that the US has with Canada, putting the final total deficit at $21 billion, no paltry sum, but certainly not $100 billion.

End score:

Jan: 1

Trump: 0

Still, the thing that made me wonder about these number concerned population factors. When we factor in the population of the US and Canada, these numbers, even though they are relatively balanced, do seem a bit skewed. The US has almost 10x the population of Canada. How is it that Canada can export even more to the US than the US exports to Canada with so few workers?

In other words, Canada must have some huge competitive advantage that US companies do not have. Jan, I was going to ask if you know what gave Canada this advantage, since, unlike China or India or Vietnam, the general safety regulations for Canadian workers must be relatively similar to that of the US worker (unlike China, India or Vietnam, who have an absolute advantage over the US worker in this case). Also, the benefits to the Canadian workers for their labor must be relatively similar to that of the US worker (unlike China, India or Vietnam who have an absolute advantage over the US worker in this case). It seems, at least according to most factors, Canadian corporations and US corporations should be competing on a relatively even standard. And yet, Canadian corporations are crushing US ones. So, I was going to ask if you knew what is it that Canada has which gives their industry such an advantage over US industries?

But then I realized I probably I already knew. I did a quick search to see if Canada has a value added tax...

...and sure enough, the average VAT rate in Canada is over 10%.

So now, I have a very different question for you. Jan, you seem to have a very strong knowledge of the Canadian economy (and of Canada in general), so what do you think would happen to the Canadian economy if the US matched their VAT by putting a 10% tariff on ALL imports from Canada?

...just wondering.

Fair is fair, after all.

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Still, the thing that made me wonder about these number concerned population factors. When we factor in the population of the US and Canada, these numbers, even though they are relatively balanced, do seem a bit skewed. The US has almost 10x the population of Canada. How is it that Canada can export even more to the US than the US exports to Canada with so few workers?

In other words, Canada must have some huge competitive advantage that US companies do not have. Jan, I was going to ask if you know what gave Canada this advantage, since, unlike China or India or Vietnam, the general safety regulations for Canadian workers must be relatively similar to that of the US worker (unlike China, India or Vietnam, who have an absolute advantage over the US worker in this case). Also, the benefits to the Canadian workers for their labor must be relatively similar to that of the US worker (unlike China, India or Vietnam who have an absolute advantage over the US worker in this case). It seems, at least according to most factors, Canadian corporations and US corporations should be competing on a relatively even standard. And yet, Canadian corporations are crushing US ones. So, I was going to ask if you knew what is it that Canada has which gives their industry such an advantage over US industries?

But then I realized I probably I already knew. I did a quick search to see if Canada has a value added tax...

...and sure enough, the average VAT rate in Canada is over 10%.

So now, I have a very different question for you. Jan, you seem to have a very strong knowledge of the Canadian economy (and of Canada in general), so what do you think would happen to the Canadian economy if the US matched their VAT by putting a 10% tariff on ALL imports from Canada?

...just wondering.

Fair is fair, after all.

To parse out the various issues you raise: Canada's big-dollar exports to the USA do not require "workers" in the sense you raise them, simply because most of the exports are resource materials shipped in bulk, with lower labor content. For example, the largest export from the Province of Quebec to the USA is electricity, coming from the Churchill Falls Dam in Labrador, and the James Bay dams on the East Shore of Hudson Bay. The labor content of electricity is quite low. You have some maintenance workers, and sales people, but it is not really produced in some industrial concept. However, the sale of electricity pretty much pays for all the "free" healthcare in the Province, which health care system is very good and very expensive, probably a third of the budget.

Other big earners are aluminum, where the bauxite ore is shipped in from South America and smelted in those big smelters running on cheap Canadian electricity, an unbeatable combination, and nickel from Sudbury and Rouyn-Noranda, and at one time asbestos, and iron ore from Sept-Isles. Then if you go West you have lumber from British Columbia, again not a high labor content, and grains (typically not exported to the USA), and of course oil, which is exported to the USA. So it is resource related.

Now in manufactured goods most of those flow from Ontario and Quebec, and you see complex goods such as aircraft from Montreal and railcars from both Quebec and Ontario, and autos, a big earner for Ontario as 85% of production flows directly to US buyers, and auto parts, and vast amounts of other miscellaneous goods including both sheet steel (Hamilton), pipe, construction girders, and stamped goods. And you had even finished agricultural goods such as Campbell Soup and Heinz ketchup (plant now closed) and there are military goods. But because the dimwits that have been running Ontario drove the price of both electricity and labor up through the roof, the manufacturing sector has largely collapsed and Ontario is now a recipient Province in their "equalization payments" scheme. Government stupidity will always triumph over competence and quality leadership.

The imposition of a VAT is a new phenomenon, and I do not believe it has any impact on the trade relationship, it is a tax being levied on goods and services on the retail end, not the wholesale or import end. They started that nonsense about 30 years ago, might be 40. Previously, the country ran on a tariff wall of about 15 to 17% and that resulted in what was known as the "branch plant economy," where you have all these inefficient local Canadian plants building products designed in the USA and manufactured in these small local plants at high unit cost, mostly overseen by incompetent Canadian neo-managers. That all changed with NAFTA which forced the rationalizatioin of the Canadian manufacturing sector, and you ended up with winning Canadian plants with longer production runs and competent managers from either country running them. And then it got wrecked with the imposition of higher unit costs from government dimwits.

The competitive advantage that Canadian plants and workers have is that they do not carry a health-care burden. Health care is very expensive, and where the company pays the tab (as typically in the USA) it impacts the wage bill significantly. In Canada all that health care is socialized and folded into the Provincial tax rates, so it is paid out of the general fund (and in Quebec it gets paid effectively by the Americans, via the sale of electricity). the other big advantage that Canadian companies have is a vastly depreciated Canadian dollar. The currency pair floats and that accommodates capital flows, the spinoff effect is that as the Cdn Dollar floats downward, the vendors of goods from Canada can discount or otherwise have this cushion to work with that the US plant does not. Right now the float is a 30% cushion, so inefficiencies are masked and absorbed by the float.

If the US hit Canada goods with a 10% broad tariff you would put Canada into recession. It might even go to depression. Hard to say. Canada is entirely dependent on sales to the USA. They are not structured to go it alone as an independent economy.